The Dynamics of Discounts – Mastering the Art of Promotional Pricing

Whether you’re shopping for clothes, garden furniture, or just groceries this summer, it’s hard not to get swept up in the fever of promotions. In the first half of 2024, there were 8.8% more promotions in stores than the previous year, according to a UCE Research report. The current economic situation suggests that the number of promotions will continue to rise. Increasing prices in stores are forcing retail chains to intensify sales in order to attract and retain customers. When we also consider consumer sentiment and the price wars among the most popular retailers, they will need effective tools for managing inventory and promotions more than ever before, while also ensuring a positive customer experience to maintain a highly competitive position in the market.

Raising the Bar

It’s clear that retailers need to sell more. The key is not only attracting new customers but also maximizing the value of transactions with existing ones. Recently, it’s become apparent that brands have particularly embraced promotions to achieve both of these goals. Beyond the many advantages of this approach, there are three key challenges to consider.

Firstly, not every promotion holds the same value for every customer. It is crucial to tailor the offer to the specific needs of individual microsegments, as they have different preferences, expectations, and financial capabilities.

Secondly, not every promotion yields the desired results, especially if it is not well-planned. Lowering the prices of products that customers already intend to buy can not only reduce margins but also lead to what is known as sales cannibalization. Therefore, promotions should be designed in such a way that they encourage customers to explore and try new or more expensive products. Effective promotion management requires skillfully balancing between encouraging the purchase of new or less popular products and avoiding overly frequent and deep discounts on items that are already in high demand.

Thirdly, the number of available promotions in the market is so vast that it can sometimes be difficult to stand out with your offer. Customers are bombarded with numerous promotions and special offers at every turn. The timing of notification delivery and the use of appropriate communication channels are crucial for effectively reaching the target audience.

Promotions for Everyone!

Not long ago, promotional offers were more universal and aimed at all customers. Simple, widely accessible forms like discount coupons, seasonal sales, or price reductions on specific products dominated. The goal of such actions was to attract as many customers as possible to stores and increase sales in the short term. However, it is well known that the true art is not selling everything cheaply to everyone, but rather increasing customer value over time through such actions. As a result, special offers have gradually become more sophisticated. Companies started to impose quantity or time limits defining the rules of promotion availability.

In response to this challenge, many companies have turned to loyalty programs as an effective tool in the battle for the customer’s wallet and the accountability of prepared offers. The necessity of signing up for a loyalty program to take advantage of a discount has even lured skeptics – according to Mintel, last year alone, 80% of consumers signed up for at least one loyalty club, and nearly 60% actively participate in four or more programs.

The Art of Organizing Promotions

The increase in data availability and the development of analytical technologies have allowed retailers to better understand their customers. By analyzing information from loyalty cards, transactions, and online behavior, companies can segment their customers and thus create highly tailored offers. In-depth data analysis allows retailers to better manage promotions for selected assortments by controlling them in line with their own goals and customer expectations, instead of applying common discounts across the entire inventory. Better matching offers to customer needs and preferences translates into higher promotion effectiveness. It is personalized discounts that have begun to increase the chances of conversion and customer loyalty. Customers choose the stores that enable them to “shop smart” – save money and manage their spending wisely.

As a result, brands need tools for more precise targeting of offers. The key is reaching a specific loyalty club member via SMS or Push notification with a promotion that will be most attractive to them, encouraging a purchase while simultaneously increasing their value over time. It’s not just about lowering the price on a product the customer already plans to buy. Special offers are meant to persuade customers to add products to their cart that they wouldn’t normally choose. This gives retailers the chance to increase the value of a single transaction and, in the long run, the overall value of the customer.

Promotions Here, Promotions There, Promotions Everywhere!

Today, retailers are also faced with the challenge of having too many promotions active at the same time. There are so many that even the most engaged and interested consumer can’t keep up with them all. The most popular retail chains often have several brochures available simultaneously. The more such offers appear, the greater the challenge of matching them to customer needs. The abundance of offers can make less experienced marketers feel overwhelmed. It is crucial for companies to find the golden mean between even the best-matched communication and the amount of materials sent while maintaining a high level of Customer Experience.

Scoring models and Artificial Intelligence come to the rescue. At Loyalty Point, we are developing our proprietary Ariadne AI system, which streamlines the daily work of marketers. Ariadne AI matches offers and recommends how to plan communication so as not to spam the customer and reach them through their preferred contact channel at the right time. The module analyzes offer alignment, assesses the customer’s openness to communication, and calculates the risk of withdrawal of marketing consents. This way, managers receive recommendations on how to direct offers to maximize customer value over time.

What Will Promotions Look Like in the Future?

Modern systems allow for automatic adjustment and personalization of offers, ensuring more precise and effective targeting of promotions. Although longer-lasting and higher discounts may seem attractive, the goal is not just to attract customers with low prices. Marketers need tools for automatically generating offers. Systems like the Hermes AI, developed by Loyalty Point, will not only automatically tailor offers to the individual needs of the customer but also optimize promotion parameters. Marketers will be able to set basic guidelines, such as available discounts, budget limits, or promotion duration, and the system will propose the best products and offer conditions tailored to microsegments. Automatic offer generation is the next step in executing promotions, maximizing their effect while minimizing costs.

Summary

In the face of increasing competition and changing customer expectations, promotions have become a key tool in the battle for consumer loyalty and their wallet. Finding answers to the questions of what, when, and through which channel to offer, amid intensified competition, is becoming an increasingly challenging task. To succeed, retailers must effectively manage their offers by using analytical tools and AI systems to reach customers with the right proposals at the right time. The ability to effectively manage promotions is becoming an increasingly complex and technically advanced task that requires both a deep understanding of customers and the use of modern technologies.